HSBC clients say a hard Brexit is the greatest risk to financial markets in 2018

Of all the risks facing financial markets in 2018, none is perceived to be greater than a hard Brexit from the European Union.

That’s the overwhelming view of HSBC’s client base with a whopping 76% nominating this as the greatest risk facing financial markets this year.

Here are the perceived greatest threats, according to HSBC customers:

Source: HSBC

The threat posed by a hard Brexit was deemed to more than double that from a US dollar funding squeeze or a credit crisis in China, two outcomes that would likely have far greater ramifications for financial markets than a breakdown in Brexit negotiations.

While somewhat of an anomaly, particularly to those outside of Europe, HSBC says there’s an explanation as to why a hard Brexit is seen as the most potent risk: certainty around timing.

“Both of these risks [a USD funding squeeze or China credit crisis] have the potential to be much bigger events for global financial markets than a no-deal Brexit,” it says.

“However, neither of them have as clear a timeline as the Brexit negotiations.

“Perhaps this explains why our readers are more concerned about a no-deal Brexit for the coming year.”

Outside of those top three risks, HSBC clients also cited the Fed hiking interest rates faster than what markets currently expect, the potential for trade disruptions, a sharp rebound in the US dollar and an unwind in the rally in emerging market assets as other potential risks.

Aside from trade, all of those risks are interlinked.

As for those that are not seen as likely, those polled suggested that a rate hike from the ECB, and the ability for Abenomics to help lift Japanese inflationary pressures, were unlikely to rock financial markets this year.